Debt auction adds fresh pain to India bonds hit by oil prices

MUMBAI: Indian government bonds are likely to extend their decline in early deals on Friday as traders brace for a large debt auction, while oil prices remain elevated amid doubts over the durability of a ceasefire between the US and Iran.

The benchmark 6.48% 2035 bond yield will likely trade in the 6.95%-6.99% range until the debt auction later in the day, a private bank trader said, after ending at 6.9601% on Thursday.

New Delhi will sell 340 billion rupees ($3.68 billion) of the benchmark bond, taking the outstanding issuance size of this paper to 2.26 trillion rupees.

“There is interest in the benchmark paper, but investors would prefer some concession before the auction.

Unless there is stronger central bank support or a favourable global backdrop, the market may demand a yield closer to 7%,“ the trader said.

On Wednesday, the 10-year bond yield had posted its biggest single-day decline as it plunged 15 basis points after the warring countries accepted a two-week truce deal.

However, the yield retraced half of that move on Thursday after oil prices rebounded. Oil stayed elevated on Friday at around $97 per barrel, with markets evaluating the risk premium from the ongoing closure of the Strait of Hormuz.

The strait connects supply from key Middle East producers, including Iraq, Saudi Arabia, Kuwait and Qatar, to global markets and typically carries about 20% of oil supply.

India, which imports nearly 90% of its oil, is among the most vulnerable nations to a prolonged supply disruption.